Quadruple Witching and the FOMC

Before individual stock futures trading was allowed in the US markets, third Friday of the months of March, June, September, and December were known as Triple Witching expiration months.  Triple witching was the expiry of stock options, index options, and index futures.  The Friday 3 PM ET to 4 PM ET became known as the  “triple witching hour”.  The simultaneous Friday expirations generally increase the trading volume of options, index futures, as well as trading in the underlying stocks, occasionally leading to increases in volatility of prices of related securities.

Quadruple Witching (QW) options/futures expiration  is a newer term that refers to the third Friday of March, June, September and December, when options, index futures, individual stock futures, and options on index futures … all expire at the same time.  scan0001aMassive trades in options and underlying stocks by hedge strategists, arbitrageurs, and computer algorithms can cause above average volume and added market volatility. “Derivatives contracts based on stock indices do not generally involve the actual exchange of any underlying security, but rather are cash-settled based on some fair market value at a specified time.”  Many arbitrage strategies involve simultaneous, offsetting transactions in a basket of stocks representing an index and a derivatives contract on the index. When the derivatives contract reaches expiration, the usual practice is to buy or sell the basket of stocks at the exact price used for cash-settling the derivatives contract.

What does Quadruple Witching (QW) have to do with the US Federal Reserve’s Federal Open Market Committee (FOMC) meetings?  First, let’s take a look at the 2017 FOMC calendar and my note from Index Support & Resistance blogs:   Don’t forget to check the above dates against 3rd Friday of the month options/futures expiry…  Especially, Quadruple Witching (QW) months March, June, September, and December

  I.   Federal Open Market Committee (FOMC)

Planned 2017  meetings:    ( FOMC  Calendar & info )
  • 2017 FOMC Meetings
  • Jan/Feb  31-1
  • March 14-15*
  • May  2-3               no rates increase as expected
  • June 13-14*       rates increase to 1.0 to 1.25 percent
  • July  25-26
  • September  19-20*
  • Oct/Nov  31-1
  • December  12-13*
  • * Meeting associated with a Summary of Economic Projections and a press conference by the Fed Chairperson  Ms. J. Yellen.
  • Don’t forget to view downloadable PDFs from previous years
  • Don’t forget to check the above dates against 3rd Friday of the month options/futures expiry…  Especially, Quadruple Witching (QW) months March, June, September, and December
     –   –   –   –           –   –   –   –           –   –   –   –
   Now, let’s take a look at the dates comprising the third Friday of the month options/futures expiry versus the dates as listed above.

 II.  Third Friday of the month options/futures expiry
               vs. 2017 Fed FOMC meeting dates

  • Friday expiry vs. FOMC meeting
  • Jan 20th …..   Jan 31-Feb1 (after expiry)
  • Feb 17th
  • Mar 17th (QW) …..  March 14-15* (2 days before QW expiry)
  • Apr 21st
  • May 19th
  • Jun 16th (QW) …..    June 13-14* (2 days before QW expiry)
  • Jul 21st
  • Aug 18th
  • Sep 15th (QW) …..    September 19-20*  (after QW expiry)
  • Oct 20th
  • Nov 17th
  • Dec 15th (QW) …..    December 12-13* (2 days before QW expiry)

 

We can see the four (4) FOMC asterick noted meeting dates in Table I. are associated with (1) a Summary of Economic Projections and (2) a press conference in all FOUR Quadruple Witching months.   More importantly however, is that THREE out of four of the FOMC meetings that occur in Quadruple Witching months end only TWO trading days before Quadruple Witching  expiry. 

 Relieved or Shocked?     IMHO, if the FOMC thinks the markets are suffering from Mr. A. Greenspan’s suggestions of ” … irrational exhuberance … ” a careful FOMC choice of wording can lead to market pull backs.  If the FOMC needs help to meet its goals, accomplish its agenda, again a careful choice of market “trigger words” could lead to a US and even global markets rally … or, a pull back.

 

—  Thursday, 6/1/2017   thru    Friday 6/30/2017  ——

 

  Hope the above Quadruple Witching and the FOMC meeting week information helps your future QW expiration month and week investing and trading planning

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